British win more favourable tax deal terms

Objections to Rubik can also be heard within the British Bankers’ Association AFP

Switzerland has decided to give in to demands by Britain to modify a planned bilateral tax treaty, after continued opposition to the accord.

The finance ministry on Friday said both sides agreed to raise the minimum rate to legalise untaxed assets from 19 per cent and 34 per cent to between 21 per cent and 41 per cent, similar to a deal between Switzerland and Germany.

The agreements still need approval by all the country’s parliaments in order to come into force next January.

 

The British authorities had asked the Swiss to review the first version of the so-called Rubik accord, initially agreed in October 2011, which regulates the taxation of British assets managed by Swiss banks.

They argued the “most-favoured nation” clause written into the deal should secure them similar concessions to those obtained by Germany.

In exchange for cloaking the identity of offshore account holders, the Rubik deal promises to pay compensation for past tax dodging and compel banks to cream off a withholding tax on the future profits of client assets.

At the beginning of April Switzerland agreed to revise upwards the tax rate – initially agreed in September 2011 – applied to German nationals’ assets held in Swiss banks.

A lump sum tax payable on deposited capital will be taken by the banks and transferred anonymously to tax authorities in Germany at a rate varying between 21 and 44 per cent rather than the 19 and 34 per cent range initially planned.

Meanwhile, a withholding tax for capital gains remains the same – 26.4 per cent for Germany and 27 per cent for Britain – and 48 per cent for other British income.

Berlin also managed to get the mention of “reciprocal access to markets” deleted. The German authorities will be able to make 1,300 requests for information on their citizens holding Swiss bank accounts instead of the 999 planned in the first version of their accord.

Concerns

The British were keen to negotiate the best possible deal as the Rubik accord has sparked growing concerns, similar to those seen in Germany.

“This agreement represents an act of treason by the British government against its own people,” tax evasion activist Richard Murphy said ahead of Friday’s final deal. “It gives the Swiss banks carte blanche for their organised crime.”

Murphy supports the automatic exchange of tax information on assets held by British taxpayers in offshore financial centers and believes the British government should put pressure on Switzerland by withdrawing banking licenses granted to the Swiss financial institutions.

“Banks that knowingly handle stolen money should no longer be able to operate on British soil,” he added.

“Flaws”

John Christensen, director of the non-governmental group Tax Justice Network, also described the proposed deal as “full of flaws” and said the British government’s hopes of raising £5-7 billion (SFr7.3-10.3 billion) a year were “completely exaggerated”.

British account holders who have hidden money abroad “will continue to evade taxes, making use of trusts, insurance schemes and foundations, as these structures make it impossible to identify the real holder of the assets”, said Christensen.

The deal’s entry into force 18 months after it was agreed upon has also given tax dodgers “ample time to move their money to another financial centre or foreign branch of a Swiss bank”, he added.

The Rubik treaty foresees that before January 1, 2013 Switzerland will have communicated to the British authorities the top ten destinations for account holders’ assets as well as amounts transferred and the number of clients.

Parliament

Criticism of the deal is not just coming from civil society groups. A British parliamentary sub-committee gave a damning report on the proposed deal in March, condemning the withholding tax rates.

“We are concerned that the levies on Swiss bank accounts will result in those who have sought to avoid tax by concealing their assets offshore receiving far more favourable tax treatment than those who were compliant in the first place,” the committee concluded.

High earners currently pay a top rate of 50 per cent in Britain, which will fall to 45 per cent in 2013.

Some parliamentarians, like Caroline Lucas of the Green Party, Labour’s John Mann or Tom Blenkinsop have shared their concern in parliamentary debates. And several Liberal Democrats have expressed doubts about Rubik, said Christensen.

More measured

Objections have even been heard within the British Bankers’ Association.

“This agreement is a compromise in which the British government has accepted not to alienate its main backers and donors,” a top official told swissinfo.ch anonymously before Friday’s announcements by the Swiss finance ministry.

“We’d be better off finding ways of plugging some of Britain’s tax loopholes.”

But in general the tone is more measured than in Germany where “Rubik is seen as an ethical issue, while the British are more pragmatic”, a Swiss tax official admitted.

Even members of the opposition Labour Party seem loath to fight the British Rubik deal as “negotiations on the agreement were launched when they were still in power”, he added.

Rubik tax deals

The Rubik principle was devised by the Association of Foreign Banks in Switzerland. The project wants to separate income from wealth and hand over tax at source to third countries, while keeping the Swiss bank account holder’s anonymity.

The inventors say this strategy will also afford more protection to foreign bank employees in Switzerland from legal action by third countries.

It is hoped that guaranteed anonymity will encourage foreigners with assets being managed in Swiss banks not to take them away.

TAX aCCordS

The accord with Austria signed on April 13 is the third of its kind with an EU member state.

Agreements, with slightly different terms, were also signed with the British and the German governments in March and April.

They are scheduled to come into effect at the beginning of January 2013.

However, the accords are subject to approval by the parliaments of all countries.

Deals with other EU member countries are planned despite pressure from Brussels to introduce an automatic exchange of banking data.

However, non-EU member Switzerland wants to maintain its banking secrecy rules.

On April 17, the EU taxation commissioner confirmed the Rubik accords with Germany and Britain did not breach EU laws.

(Adapted from French by Simon Bradley)